Medicare Payment Policy

the Commission’s 2012 update recommendation for skilled nursing facility services
Recommendation 7-1, March 2012 report
the Congress should eliminate the market basket
update and direct the secretary to revise the
prospective payment system for skilled nursing
facilities for 2013. Rebasing payments should begin
in 2014, with an initial reduction of 4 percent and
subsequent reductions over an appropriate transition
until Medicare’s payments are better aligned with
providers’ costs.
Implications 7-1
spending
• When this recommendation was made in March
2012, its spending implications were that it would
lower program spending relative to current law by
between $250 million and $750 million for fiscal
year 2013 and between $5 billion and $10 billion
over five years. Savings occur because current
law requires a market basket increase (offset by
a productivity adjustment, as required by the
Patient Protection and Affordable Care Act of
• Variations in Medicare margins are not related to
differences in patient characteristics but rather to the
amount of therapy furnished to patients.
• Cost differences are unrelated to wage levels, case
mix, and beneficiary demographics.
• Relatively efficient SNFs, with relatively low costs
and high quality, indicate that payments could be
lowered without adversely affecting the quality of
care.
• FFS payments to some SNFs were considerably
higher than some MA payments, suggesting that some
facilities are willing to accept much lower rates than
FFS payments to treat beneficiaries.
• The industry has shown it is nimble at responding
to the level of Medicare’s payments in two ways:
Medicare’s cost growth has consistently been above
the SNF market basket since 2001 and revenues
increased even when payment rates were lowered in
178 Skilled nursing facility services: Assessing payment adequacy and updating payments
2010). Updated for implementation a year later, the
direction of the savings is identical. The one-year
savings estimate remains the same, while the fiveyear
estimated savings grew slightly and are over
$10 billion.
Beneficiary and provider
• We do not expect an adverse impact on beneficiary
access. Revising the prospective payment system
will result in fairer payments across all types of
care, making providers more likely to admit and
treat beneficiaries with complex care needs. We do
not expect the recommendation to affect providers’
willingness or ability to care for Medicare
beneficiaries. Provider payments will be lower but
the differences in Medicare margins will be smaller.
Impacts on individual providers will be a function
of their mix of patients and current practice
patterns. The recommendation will not eliminate
all the differences in Medicare margins among
providers due to their large cost differences. ■
2010. In reaction to the lower payments in 2012, SNFs
focused on the efficiency of their therapists so they
could continue to furnish high levels of therapy.
These factors show that the PPS has exerted too little fiscal
pressure on providers. Moreover, Medicare payments,
which are financed by taxpayer contributions to the trust
fund, currently subsidize payments by Medicaid and
private payers. If the Congress wishes to help nursing
facilities with a high Medicaid payer mix, a better targeted
and separately financed program could be established to
do so.
For 2014, there are no policy changes known at this
time aside from the required update and productivity
adjustment. The payment update in current law is the
forecasted change in input prices as measured by the SNF
market basket minus a productivity factor. The market
basket for SNFs in 2014 is projected to be 2.8 percent and
the productivity adjustment is estimated to be 0.4 percent,
but CMS will update both before establishing payment
rates for 2014.